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China’s Great Stall

The Republic of Korea and Taiwan are the only economies of appreciable size to have transformed themselves from low-income to high-income status inside two generations. China has already matched, if not surpassed, the speed of the earlier part of these two far smaller economies’ journey. The biggest question, not only in global economics but arguably also in world politics, is whether China will finish what it has successfully begun, or crash along the way. The answer is that the obstacles ahead are formidable. China might overcome them. But it is also imaginable that it will fail to do so, or, at least, that the journey will take longer and be more difficult than many now imagine.

The stakes are very high. If China were to succeed even partially, its economy would be bigger than those of the United States and the European Union combined. If its political system were to remain largely unchanged, the world’s largest high-income country would then not be a democracy, unlike all the others. This would partially reverse the triumph of liberal democracy, hailed at the end of the Cold War.

The journey that lies ahead for China is to become a high-income society. Other societies have achieved prosperity merely by exporting valuable commodities. But that is not development. It is also not a path open to China. While China has used—indeed, abused—its endowment of natural resources, particularly water, air and fossil fuels, during its period rapid economic growth, these resources have always been far too limited to generate even temporary prosperity for so huge a country. Indeed, the abuse of its resources is now creating significant challenges of environmental degradation.

As was true of South Korea and Taiwan (and Japan before them), China’s most valuable resource is its hard-working, increasingly well-educated and enterprising people. In the course of their development, the other East Asian economies transformed the structure, sophistication, and size of their economies and, in the process, the quality of the labor force itself. This has also been China’s path.